Trump reacts to what’s in front of him – usually Fox New – and his topic of focus can shift quickly.

He selects his target du jour based on who he feels most recently slighted him (e.g. Jeff Bezos and Amazon).

However, the president also has an attention span equivalent to the lifespan of a fruit fly, so he usually does not stay focused on the same target for very long. As a result, his bark is often much worse than his bite. (We’ve seen this with pretty much everything. North Korea, NAFTA, border wall, etc).

Companies temporarily in his cross-hairs largely have been able to escape any long-standing damage by offering token concessions, such as Boeing did with some tweaks made to the Air Force One contract, or by simply refusing to take the bait at all, as has been the case with Amazon and Bezos this week.

For Trump, appearance is reality. He always wants to appear to have the upper hand in any negotiation. Thus, he tends to be a serial hostage taker, although he has not demonstrated an inclination for actually shooting a hostage as much as he wants others to think. Rather he seeks to use the hostage as a source of negotiating leverage.

Trump’s negotiations usually end with some token concessions. Chinese President Xi Jinping knows this. So the most likely outcome between Trump and China are some token concessions that Trump can point to as a “major success”. Trump is not actually looking to fight to the end of a trade war to make “America great again”. He cares more about the appearance of success.

1 am: Bond and forex volatility is a medium-long term bullish signal for the stock market.

The S&P’s volatility is soaring right now, with 2% daily movements the norm. HOWEVER, what’s notable is that the bond market’s and forex markets’ volatility is very low right now.

This divergence between stock market volatility and bond/forex market volatility has only happened once since 1980: November 1998, at the bottom of a 20% “significant correction”. That was a medium-long term bullish signal for stocks because the bull market continued until March 2000.

This divergence exists because the stock market has too many mom-and-pop investors who panic-dump and panic-buy on the latest CNBC headline, while the bond and forex markets are mainly controlled by professional traders and investors.

1 am: Global economic growth is slowing down, but not deteriorating. Not yet a medium-long term bearish factor for global stock markets.

Some bearish investors are concerned that global economic growth is starting to slow down. This is true. Global economic data is no longer consistently beating analysts’ expectations the way it did in 2017.

However, this is not a medium-long term bearish sign for the stock market at the moment. Short term fluctuations in the economic data are normal and mostly temporary. For example, you can see that global economic growth slowed down in mid-2016, but the stock market merely made a 6% “small correction”. There was no “significant correction” or bear market.

The economy never grows at the same pace nonstop. We will be concerned if the data starts to deteriorate noticeably, but this has not happened yet. The stock market and economy move in sync over the medium-long term.

1 am: The smart money is extremely bearish on $VIX. A medium term bullish sign for the stock market.

Commercial hedgers are extremely bearish on the VIX as a percentage of open interest (see red line below).

This means that the smart money is betting on a significant decline in VIX, which means that they’re betting on a medium term rally in the U.S. stock market. This is a medium term bullish sign for stocks and suggests that the stock market’s short term downside is limited.

1 am: the stock market is not copying a “mega-crash” pattern.

Bears love to use analogues and fractals, because these analogues supposedly “suggest” that the stock market is about to crash. Here’s one that suggests the S&P 500 will copy 2000-2002

These analogues are rarely right. Analogues simply aren’t very useful because there’s far too many false signals (see post). These analogues always adjust the scales to make 2 time periods “look the same”.

Bearish traders are saying that the chart today looks like 1987. It always does (and this comparison is almost always wrong).

This pattern is neither a bullish sign nor a bearish sign for the U.S. stock market. It’s irrelevant. The market doesn’t “copy” itself.

I do not use my discretionary outlook to place entry/exit trades. I am 100% long SSO (2x S&P 500 ETF) because my Medium-Long Term model does not foresee a significant correction at this point in time. I ignore small corrections. I only sidestep significant corrections and bear markets. So please take my short term thoughts with a grain of salt.

I have been long the S&P 500 since September 7, 2017 when it was at 2465.

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